Growing Our Way Out Of Debt? Not Very Likely
The Trump Administration appears to think that the Budget Deficit and National Debt aren't a big deal because we can just grow our way out of the problem. This is highly unlikely to happen.
As I noted last week, President Trump has reportedly told aides that he isn’t worried about the national debt or expanding budget deficit because projections suggest that they won’t become serious problems until after he leaves office. In addition to the fact that this is an issue that he hasn’t really indicated any concern about in the past other than as a tool to attack opponents, one of the reasons for this attitude may be what his advisers are telling him:
Those close to Trump say that one reason the issue of debt reduction has never been an animating one for him is because he is convinced that it can be solved through means other than tax hikes or sharp spending reductions.
Stephen Moore, a conservative economist at the Heritage Foundation and an economic adviser to Trump’s 2016 campaign, recalled making visual presentations to Trump in mid-2016 that showed him the severity of the debt problem. But Moore told The Daily Beast that he personally assured candidate Trump that it could be dealt with by focusing on economic growth.
“That was why, when he was confronted with these nightmare scenarios on the debt, I think he rejected them, because if you grow the economy… you don’t have a debt problem,” Moore continued. “I know a few times when people would bring up the enormous debt, he would say, ‘We’re gonna grow our way out of it.'”
Moore has since championed this approach to tackling the debt as a key part of “Trumponomics,” and has co-authored a book supporting it.
As Moore recalled, a belief that robust economic growth would solve all problems was the way Trump—starting in 2016—justified the cost of his ambitious proposals to slash taxes, pursue big infrastructure projects, and simply avoid massive cuts to Social Security and Medicare. Since then, the president has continued to show indifference over the national debt, to the consternation of more traditionally conservative associates.
One current senior Trump administration official vented that Trump “doesn’t really care” about actually attacking the debt “crisis,” and prefers simply “job and growth, whatever that means.”
The idea that we can grow ourselves out of any impending debt problem isn’t a new idea. In fact, it’s one that has been advanced by economists on both sides of the ideological divide at various times over the years. The basic logic is that increased economic growth leads to increases in tax revenues that help to drive down the budget deficit and that a sufficiently expanding economy makes a higher national debt less of a problem than it otherwise might be. To some extent, there is some evidence that at least part of this theory has merit in that we can point to periods of economic growth such as the 80s, 90s, and early 2000s when tax revenue increased even in the wake of lower tax rates. It also happened in the later years of the Obama Administration, although in that case it actually was accompanied by significant decreases in the deficit thanks in no small part to legislative measure such as the Budget Control Act of 2011, which led to significant controls on discretionary spending that had a real impact on the budget deficit.
As I’ve noted before, though, the first budget passed under the current era of Republican control of Congress and the White House proceeded to bust through the last of those controls and set in motion a series of events that means we’ll soon see the return of the era of trillion dollar budgets something we have not seen since the years of the Great Recession when tax revenues shrank significantly due to decreased economic activity. As The New York Times noted at the time, this effectively means that Republicans have learned to love the deficits and debt they once claimed to abhor. In other words, the Republican Party, which had spent the Obama years railing about spending and deficits, had become the party of deficits and debt. By April, the Congressional Budget Office had officially forecast that we’d be seeing trillion dollars deficits by the end of Fiscal Year 2019 and just a few months later, the national debt crossed a new benchmark and was north of $21 trillion. By the end of the last Fiscal Year, we were well on our way there, with the budget deficit hitting $895 billion for Fiscal Year 2018, likely meaning that will surpass the trillion dollar mark this year.
With budget deficits headed this high, and storm clouds already appearing to gather on the horizon for the economy, the odds that we’ll be able to “grow our way” out of debt are as poor as they have been when economists confidently made this prediction in the past. Despite this, the President and those around him appear to have convinced themselves that this is exactly what is going to happen.